Those who have borrowed money to buy a home or attend school do not often get the type of good news that Fannie Mae just announced. Purchasing a house while being saddled with student loan debt presents challenges in qualifying, let alone making timely mortgage payments.
Fannie Mae has introduced sweeping rule changes that make it easier to purchase a first home or using equity in real estate to refinance student loan.
New guidelines include:
- For more than five million student loan borrowers already participating in federal reduced-payment plans, monthly payments reported to the credit bureau will count towards debt-to-income (DTI) ratio calculations.
- American homeowners (estimated at 8.5 million) still carrying student debts can now take advantage of Fannie Mae no longer charging extra fees for cash-out refinancing. The money taken from a home’s equity must be used to retire student debts. Those benefitting from the new policy include parents in the “parent plus” programs helping pay off their kids’ student debts and those who cosigned for their children’s student loans.
- Non-mortgage debts paid by someone else will no longer be included in DTI computations. However, the payments must have been made continuously for 12 months. Young buyers tend to benefit from improved debt ratios while still getting financial help from their parents.
From millennials to the elderly, 43 million Americans carry 1.4 trillion of student debt nationwide. Fannie’s new policies will help borrowers save money and buy homes instead of renting or living with their parents. The lender also expects mortgages originated under the new guidelines to have low default rates.
It is important to note that Fannie Mae will still require borrowers to continue meeting regular credit score and other underwriting criteria.